As the situation in China unfolds, our team of economists and strategists will closely follow the implications for markets and economies around the world. Find all the latest commentary from UBS here, updated regularly as the situation plays out. To request a specific report, please contact Huw Williams.
China’s Q2 real GDP was stronger than expected, stabilizing at 6.9%y/y as it rebounded sequentially to 7-8%q/q saar (UBS est.). Resilient consumption in Q2 helped to offset softer real infrastructure and property investment growth. Property sales rebounded to over 21%y/y in June, as did IP to 7.6%. We estimate real net exports contributed positively to Q2 headline GDP growth again.
While the FWC reiterated China's goal of opening financial markets, capital account liberalization and RMB internationalisation, it called for a gradual and stable approach in such moves and mentioned the need for "appropriate sequencing". This is in line with our expectations and indeed we do not foresee major opening moves related to the RMB or capital account in the near future.
As we highlighted earlier, some shadow credit via NBFI channels is not covered by official TSF, and we cannot simply add up banks’ WMPs and NBFI’s AMPs due to double-counting issues. With more information and data available, we update our analysis of missing shadow credit.
Other than improving supervisory framework, we think the FWC should focus on establishing a cohesive set of rules covering various financial products and services to reduce regulatory arbitrage and related risks, encouraging faster disposal of bad assets in the financial sector, establishing an exit mechanism for failed financial institutions, pushing forward capital market reforms to foster healthier market development, and initiating supervision of internet financing.
We expect June data to show industrial production growth unchanged from May, property sales resilient, FAI slightly higher and exports solid, despite recent regulatory tightening. We estimate Q2 GDP growth to have softened slightly to 6.8%y/y, but with faster q/q momentum at above 7%, as weaker investment offset stronger consumption and net exports.
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